Shares in Trump Media & Technology Group, owner of the Truth Social platform, suffered a steep 22% drop on Wednesday, marking the company's largest one-day decline since it went public in March. The sharp decline effectively erased $1.3 billion from former President Donald Trump's net worth, underscoring the volatile nature of the social media venture as the 2024 U.S. election nears. Trump, who holds nearly 57% of Trump Media's shares, has seen his stake in the company swing wildly over the past year, primarily driven by market speculation on his odds of reclaiming the White House.
Closing Tuesday at an impressive $51.51 per share, Trump Media's stock dropped to $40.03 by the end of Wednesday's trading session. The dip reduced Trump's on-paper net worth from around $5.9 billion to approximately $4.6 billion, wiping out a substantial portion of the $10 billion valuation the company briefly boasted. Trump Media's share prices had surged in recent weeks, quadrupling since late September-a rally widely attributed to investor enthusiasm over Trump's election prospects.
"It's the way the game is played on this stuff," said Matthew Tuttle, CEO of Tuttle Capital Management. "The smarter traders know you make your money and get out, leaving the others holding the bag." Tuttle pointed to high borrowing costs associated with shorting the stock, suggesting this financial deterrent has partly fueled the company's recent surge and its subsequent rapid decline. "Completely insane financing costs make it virtually impossible to short this thing," he added.
Analysts have likened Trump Media's stock volatility to the extreme highs and lows witnessed in "meme stocks" like GameStop and AMC, where share prices skyrocketed despite limited fundamental earnings. Dan Ives, a senior equity analyst at Wedbush Securities, said, "Fundamentally, the valuation is a head-scratcher, but we have seen other meme stock narratives on similar paths in the last few years."
Truth Social, Trump Media's flagship product, has a modest user base in comparison to its larger rivals in the social media space. According to Similarweb data, Truth Social's monthly U.S. active user count hovers around 698,000, a fraction of the roughly 70 million monthly users on Elon Musk's X platform. Meta's Threads, a competitor that launched earlier this year, has reported around 20 times Truth Social's user base. Despite these figures, Trump Media's market value, even after Wednesday's downturn, still stands at over $8 billion, surpassing some established media companies with significantly higher revenue.
Trump Media initially went public in March through a merger with Digital World Acquisition Corp., a special-purpose acquisition company (SPAC). Following its debut, shares soared but have since been subject to considerable fluctuation. Some political analysts suggest Trump Media's value has become an indicator of investor sentiment surrounding the former president's political fortunes. While political polls show a neck-and-neck race between Trump and Democratic nominee Kamala Harris, some betting markets give Trump an edge, an outlook that some investors may be keen to act on despite the lack of direct correlation between these markets and actual election outcomes.
"There's a lot of hope riding on this stock," said an analyst close to the matter, who wished to remain anonymous. "The idea that Trump's odds in the election impact his media stock has become a self-fulfilling prophecy in some circles." In the weeks leading up to the election, the stock saw a substantial rise, likely buoyed by Trump's recent campaign events and shifts in political betting markets.
However, Trump Media has faced challenges since its inception. The company reported losses of over $340 million against revenue of just $1.6 million for the first half of this fiscal year. With a large portion of its retail investors believed to be Trump loyalists, the company's market performance has been seen as a reflection of investor support for the GOP candidate. Many of these investors view buying into Trump Media as a symbolic endorsement of his campaign, as well as a financial bet on his return to office.
Market insiders also point out that Trump Media's stock was unable to sustain its high momentum, with Wednesday's sharp drop representing a "technical correction," according to analysts. The company had briefly eclipsed the market value of Paramount Global, a media giant with more than $14 billion in revenue this year, making Trump Media's sudden valuation dip all the more dramatic.
While Trump has pledged not to sell his stake in the company, the extreme volatility suggests that further fluctuations in Trump Media's value could be imminent as election day approaches. The stock's recent decline could signal waning investor confidence, or simply a natural correction following its unprecedented ascent. As one analyst put it, "With an election a week away, Truth Social's market price has become a litmus test for some investors on Trump's odds in the White House race."
Despite the drastic drop, Wednesday's closing price leaves Trump Media trading at levels still far above where it started the year.
